Spousal vs. Non-spousal Tax rate

CFA Level III
#1

Can anyone help me explain when to use which? For example, for the son from a previous marriage, which inheritance tax rate (spousal vs. non-spousal) should be used? What about the gift tax rate?

#2

Spousal Tax = Tax rate applies only between spousals, not on another family members.

About choice between gift tax rate or non spousal tax rate, well, it depends on facts in question and should be stated which one between two tax rates will apply.

#3

Thanks Flashback for your reply. Not sure if you saw the official answer of the Individual IPS question from last year’s mock. The son is from the lady’s previous marriage. However, the spousal inheritance tax rate is applied to the request while the non-spousal gift tax rate is applied for another gift from his mother. why are the two rates not consistent?

#4

The spousal inheritance tax is is applied to inheritance between married couple.

Non-spousal gift tax rate is applied to gift from mother to son.

Everything is consistent here. The other two mentioned rates are spousal gift tax and non spousal inheritance tax.

First cannon be applied on inheritance, second cannot be applied on gift.

The biggest challenge in AM session is carefully reading the question. I started underlining essential words in each question to distinguish from non-essential details.

#5

Thanks Flashback! I got it now.

#6

In this question Jack is getting 50% of community property tax free which equates to 6 million dollars. He needs 8 million total after tax. So Jack needs his mom to bequest him an additional 2 million of after tax money. The guideline answer divides $2,000,000 by 1 minus the “Spousal Inheritance Tax” of 20% to get to the final answer of $2,500,000.

Jack is her son, so how is the correct tax rate the “Spousal Inheritance Tax” of 20% and not the “Non-Spousal Inheritance Tax” of 50%?

Any help here would be much appreciated because this question is blowing my mind. Thank you.

#7

Because Jack is not her son. “And her husband, Jack”. First sentence. The son is Ryan.

#8

I should probably sleep at some point before the test…Thank you.